The Delhi High Court is slated to hear on May 9 two appeals filed before a Division Bench against a single judge’s decision to uphold Central Consumer Protection Authority (CCPA) guidelines that prohibited the automatic addition of service charges to food bills in restaurants.
The single-judge ruling has been challenged by the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI).
The matter was listed before a Division Bench of Chief Justice Devendra Upadhyay and Tushar Rao Gedela today.
However, the Bench deferred the hearing till May 9, owing to technical difficulties faced with virtual hearing facilities today.
In July 2022, the CCPA issued guidelines prohibiting restaurants from forcibly collecting service charges. This followed numerous consumer complaints about the practice of adding 5–20 per cent of service charges to food bills without the customer's consent.
The CCPA guidelines were challenged before the High Court by the NRAI and the FHRAI, who argued that the practice was an 80-year-old industry norm linked to labour agreements. However, the a single judge of the Court found no evidence that service charges directly benefited employees.
The single judge ruled that service charges must be voluntary and that compelling customers to pay them amounts to an unfair trade practice under the Consumer Protection Act, 2019.
The Court also confirmed that the CCPA has statutory authority under the Consumer Protection Act to regulate unfair practices and that the guidelines, though termed "guidelines," have the binding force of law.
The single judge further banned the misleading use of the term "service charge," noting that it may mislead consumers into thinking that they are government taxes. Restaurants were directed to use clearer terms such as “voluntary contribution” or “staff welfare fund" for such charges. Restaurants were also ordered to ensure that there is no automatic addition of such charges to bills. Customers must be informed clearly that tipping is voluntary, the Court siad.
The single-judge Bench proceeded to uphold the CCPA guidelines and dismissed the petitions filed by restaurant associations. A penalty of ₹1 lakh each was imposed on NRAI and FHRAI, payable to the CCPA for consumer welfare.
This order prompted the NRAI and FHRAI to move appeals against the single-judge Bench's judgment before the Division Bench of the Delhi High Court.
The NRAI, in its appeal, has argued that service charges, when clearly disclosed on the menu and at the restaurant, does not amount to an unfair trade practice under the Consumer Protection Act, 2019. It has submitted that a service charge is a long-standing industry practice, recognized by the Supreme Court, High Courts, Wage Boards, and labour settlements, and that it forms part of employee compensation.
The NRAI added that this case raises questions on whether the issue falls under labour law, rather than consumer law, and whether the CCPA has jurisdiction to regulate pricing structures that are disclosed and accepted by customers at the time of placing orders.
NRAI has also argued that customers have the option not to avail the services if they disagree with the service charge and that the CCPA's guidelines interfere with existing wage structures and labour agreements. The restaurant association has further contended that service charge distribution benefits employees and that treating it as unfair trade practice harms the workforce.